## Facts

- Investors sued multiple service providers and directors tied to two hedge funds that liquidated after alleged losses of about $550 million.
- The sanctions dispute concerned a subset of plaintiffs whose discovery conduct involved missing documents and electronically stored information (ESI).
- Plaintiffs retained counsel in 2003 and contemplated litigation before filing; the funds’ manager entered bankruptcy and the funds went into receivership in 2003.
- Plaintiffs failed to implement timely, effective litigation holds; several issued none, and others issued holds only years later.
- Plaintiffs did not adequately identify and preserve materials from key custodians, and counsel did not sufficiently supervise or verify collection efforts.
- Some plaintiffs allowed routine deletion of emails and other ESI to continue; some affirmatively deleted potentially relevant data.
- Certain plaintiffs submitted sworn declarations describing preservation and search efforts that were later shown to be inaccurate or false.
- Discovery in 2007–2008 exposed gaps and inconsistencies in plaintiffs’ productions and explanations, leading defendants to move for spoliation sanctions.

## Issues

1. When does the duty to preserve relevant information arise in anticipated litigation, and what constitutes reasonable preservation of ESI?
2. How should the court classify preservation failures as negligence, gross negligence, or willfulness?
3. What sanctions are appropriate for spoliation, including adverse inference instructions and cost-shifting, based on culpability and prejudice?

## Decision

- The court held the duty to preserve arose no later than the 2003 bankruptcy/receivership events and, in any event, when plaintiffs retained counsel and anticipated litigation in 2003.
- The court found multiple plaintiffs acted at least with gross negligence; some conduct was willful, particularly where deletions occurred and/or false declarations were submitted.
- The court imposed sanctions calibrated to each plaintiff’s conduct and resulting prejudice, including:
  - adverse inference instructions for certain plaintiffs,
  - monetary sanctions and cost-shifting for motion-related and remedial-discovery expenses, and
  - additional remedial measures to address production deficiencies.

## Legal Principles

- The duty to preserve attaches when litigation is reasonably anticipated, not only after filing; parties must suspend routine destruction and take reasonable steps to preserve relevant paper and ESI.
- Reasonable preservation requires identifying key custodians, implementing litigation holds, and collecting from likely sources; counsel must actively oversee and verify preservation and collection.
- In ESI cases, failures such as not issuing a written litigation hold, not identifying key players, not stopping routine deletion, and not systematically collecting from key custodians may constitute gross negligence.
- Sanctions depend on culpability and prejudice; gross negligence or willfulness may support a presumption that missing evidence was unfavorable where relevance and impairment to discovery are shown.
- Adverse inference instructions are generally reserved for more culpable conduct causing serious prejudice; cost-shifting and other remedial measures may address less severe but still sanctionable failures.

## Conclusion

The court sanctioned certain plaintiffs for spoliation after finding untimely and inadequate preservation of ESI and, in some instances, misleading sworn statements, and it articulated a structured approach tying preservation duties and litigation holds to culpability levels and proportionate sanctions, including adverse inferences and cost-shifting where defendants were prejudiced.


Pension Comm. of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 685 F. Supp. 2d 456 (S.D.N.Y. 2010)